Do markets decline in value at a faster pace than they rally?
The question is put to the test using the Chicago Board of
Trade Treasury bond futures contract.
Nearly all market analysts agree that the bull market in bonds began in 1981, when the price of the Treasury bond futures contract bottomed at 55-05 (Figure 1). There is, however, an array of disagreement as to when or if the bull market ever ended. In my opinion, the bull market for bonds ended in October 1993, when the futures contract peaked at 122-06. The primary reason for my bearish view? Since the October 1993 peak, the Treasury bond has declined at a faster rate than it has advanced. For example, during the October 1993 to November 1994 selloff (Figure 2), the average daily rate of change was -2.94 ticks (one tick is 1 /32 , or $31.25 for one T-bond futures contract).
During the November 1994 to January 1996 advance (Figure
3), the daily rate of change was less, +2.78 ticks. During the January to June 1996 selloff, the daily rate of change was -4.59 ticks, while during the June to December 1996 advance, the daily rate of change was only +2.85 ticks (Figure 4). This indicates that sellers have been
more aggressive than buyers during the past three years, and
hence, my market view that the long-term uptrend has been re-versed.